The case of Sanderson Limited v Simtom Food Products Limited is a useful reminder, and contains a helpful restatement, of the law relating to repudiation of contracts in the context of the implied term to cooperate.

The dispute concerned the parties’ competing allegations of the repudiation of a contract for the supply by the claimant (Sanderson) to the defendant (Simtom) of electronic software, equipment and associated services.

The contract was not sophisticated, comprising a two page works order. Sanderson alleged that Simtom was in repudiatory breach after failing to cooperate in efforts to restart the project by 1 February 2017 (after an agreed 12 month suspension). Sanderson accepted this alleged repudiation and terminated the contract. In turn, Simtom alleged that Sanderson’s purported termination was wrong and itself a repudiation of the contract, which Simtom had accepted.

It was a classic case of the Mexican stand-off that results when each party to a contract alleges the other wrongfully terminated. The recipient of the first allegation of repudiation attempts to turn the tables on its opponent. The resolution of that issue determines which party can sue for its loss of bargain.

The term said by Sanderson to have been breached by Simtom was not an express term. Rather, it was a breach of an (alleged) implied term to cooperate. There is a long line of authority supporting the implication of a duty to cooperate where performance of the contract cannot be achieved without the cooperation of both parties. The duty, however, is not open-ended and is for the benefit of the contract itself rather than for the benefit of one party. Further, the implied term to cooperate exists only ‘to the extent that it is necessary to make the contract workable’Mona Oil Equipment Co v Rhodesia Railways [1949] 2 All ER 1014, 1018, Devlin J.

Given that the nature of the relationship between the parties ‘required close collaboration’, the Technology and Construction Court (Manchester) had no difficulty finding the existence of an implied duty to cooperate.

In relation to breach, the court held that Simtom’s failure to cooperate in restarting the project by 1 February 2017 (after the 12 month agreed suspension) was a breach of the implied term to cooperate by Simtom which breach also amounted to a repudiatory breach. The court’s relevant findings included:

  • at a meeting in February 2016 the parties agreed to suspend the project and restart it by 1 February 2017. Hence, the parties were (again) under a duty to cooperate by, at the latest, 1 February 2017;
  • Sanderson’s role was, in part, advisory and, in that capacity, it was entitled to assume that Simtom would act on its reasonable advice and guidance;
  • in restarting the project, Sanderson, by email dated 17 February 2017, sought to confirm with Simtom a date for the project kick off meeting; and
  • Simtom did not cooperate in agreeing a project kick off meeting date which amounted to a breach of the implied duty to cooperate.
  • Further, during this period, Sanderson sent Simtom an email dated 13 February 2017 stating that failure to restart the project by the end of March 2017 will ‘leave us little choice but to consider the project terminated’. Simtom’s response, by email dated 27 February 2017:
  • demanded immediate written answers to a series of questions that were better dealt with at the (then unarranged) project kick off meeting;
  • blamed Sanderson for the project’s previous failings;
  • stated that ‘we need to have our confidence fully in place before we can proceed’; and
  • asserted that it (Simtom) had ‘never committed to any specific date’ to restart the Project.

The court held that the context of Simtom’s email response dated 27 February 2017, against the background of earlier failings by Simtom to commit sufficient resources to the project, entitled a party in Sanderson’s position to ‘infer that [Simtom] had no intention of performing in strict compliance with its contractual commitments.’

Overall, the court concluded that ‘the most obvious explanation for [Simtom’s] want of cooperation is that it was no longer ready, willing or able to proceed with the project, at least in accordance with its contractual commitments.’

Finally, the court found that Simtom’s repudiatory breach was accepted by Sanderson thereby terminating the contract.

The case is interesting because it raises a species of repudiation allegation that is less common. Usually, arguments about repudiation centre on an allegation of breach that is sufficiently serious so as to go to the ‘root of the contract’ (or similar expressions). However, a repudiation can also be founded where one party evinces an intention to perform but only in a manner substantially inconsistent with its obligations.

An example of this type of repudiation in a construction context is where an employer issues variations to the scope of work to such an extent and magnitude that the thing being built becomes materially different to the original, contracted for, scope. This is sometimes referred to as ‘repudiation by creep’. In this type of example, it is the aggregate effect of numerous changes to the scope of work that results in a repudiation of the contract. It is also an interesting exercise analysing at which point on the ‘spectrum of creep’ the repudiation occurs.

Sanderson Limited v Simtom Food Products Limited [2019] 442 (TCC) (27 February 2019) (His Honour Judge Halliwell)